Since the inception of the Goods and Services Tax in Singapore in 1994 the system has been fine tuned in a number of ways. The primary concern was closing the "gaps" that presented unscrupulous businessmen with ways to claim input tax which was paid for non existent purchases which corresponded with non existent zero rated export sales.

A large number of businessmen from the neighbouring countries came into Singapore for a day, made purchases and then flew back on the same day to encash their profits. They will then come back again in a few days to repeat this cycle.

Many wholesalers began issuing Tax invoices to these businessmen without actually collecting the GST portion of the Tax Invoices on the basis of business competition and administrative convenience. The GST Tax Refund Forms scheme for a retailer was a convenient way in aiding this in that the foreign businessman was given a GST Refund Form together with a Tax Invoice for which he paid for the goods but not the GST portion together with a pre stamped envelope. Once he reached the customs station in the airport, the tax refund forms were stamped by the custom officer and a copy was immediately mailed backed to the retailer.

This way, the foreign businessman saved an additional 7% cash outlay on the goods purchased and the retailer saved himself the administrative hassle of collecting the 7% GST first and then refunding the same back to the businessman on his return to Singapore.

All this worked well in theory but in reality there were many foreign businessmen who had no intention of coming back to Singapore so they conveniently forgot to mail back the Refund Forms. The retailer on his part continued filing his monthly or quarterly GST returns indicating the amounts refunded to tourists.

All this would come to hit back the retailer when the GST department conducted an audit of the returns and required the retailer to produce the stamped refund Forms as proof that the goods actually left Singapore.

The retailer ends up paying for the 7% GST which he did not collect in the first place as he cannot prove that the goods actually left Singapore.

Sandhurst Consultancy provides advice and guidance on GST compliance.

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